Question

A manufacturing firm is looking to invest in new equipment. Options A and B have a known initial cost and a known savings each year of the analysis period as shown in the table below. Option C has a known initial cost, but an unknown uniform annual savings. Using an MARR of 7%, determine the required uniform annual savings for Option 3, if Option 3 is to be the best option. Express your answer in $ to the nearest $10.(Please make sure to give a right answer)

Option	A	B	C
0	-10000	-15000	-20000
1	3200	3800	?
2	3200	3800	?
3	3200	3800	?
4	3200	3800	?
5	3200	3800	?

Answer 1

MARR = 7%

Option A

Initial cost = 10000, revenue = 3200

AW of option A = -10000 * (A/P, 7%,5) + 3200

= -10000 * 0.243890 + 3200

= 761.093

Option B

Initial cost = 15000, revenue = 3800

AW of option B = -15000 * (A/P, 7%,5) + 3800

= -15000 * 0.243890 + 3800

= 141.64

Option C

Initial cost = 20000, Let revenue = A

AW of option C = -20000 * (A/P, 7%,5) + A

= -20000 * 0.243890 + A

= -4877.814 + A

For C to be the preffered option, AW of C should be greater than AW of A

AW of C = AW of A

761.093 = -4877.814 + A

A = 5638.91

A = 5640 (nearest 10)